1. Field of Invention
This invention relates generally to a charitable gift annuity, and more specifically to a method for determining a death benefit funded on an after-tax basis of the charitable gift annuity and for determining a new charitable gift payout.
2. Background of the Invention
A charitable gift annuity is a contract which transfers assets to a charitable organization in exchange for guaranteed, fixed income to an annuitant. The charitable gift annuity provides a means for individuals to blend together benevolent wishes, financial needs, and tax-advantaged strategies.
Charitable gift annuity payments are made to one or two annuitant(s) for life. Charitable gift annuity payments are a function of age and number of annuitant(s), the annuity rate, and the federal discount rate. Generally, payments are determined by the American Council on Gift Annuities' life expectancy tables and payout rate calculations.
State laws establish the amount of the asset or portion of the asset that the charitable organization must hold in reserve until the death of the charitable gift annuitant. The charitable organization receives an initial gift amount. The charitable gift donor receives an immediate income tax deduction equal to the initial gift amount.
At the gift annuitant's death, the unrecovered tax-free return basis of the charitable gift annuity becomes the property of the charitable organization. The charitable gift annuitant's beneficiaries receive no value from the charitable gift annuity when the annuitant dies. If the gift annuitant dies prior to life expectancy assumptions, the unrecovered portion of the payouts is considered “loss of wealth” in respect to the annuitant's estate portfolio. A major problem with gift annuities is that the surviving heirs and beneficiaries can not receive any benefit from the charitable gift annuity. If the gift annuitant does not reach his/her life expectancy, expected income is lessened as a result, and surviving heirs and beneficiaries are left without expected financial support.
In view of the foregoing, there is a need for a method by which the charitable gift annuitant can provide death benefits to surviving beneficiaries so that beneficiaries can receive income at the annuitant's death.